Heidelberg Cement India Ltd.- With all boxes ticking, can it deliver?

Heidelberg Cement India Limited


Heidelberg Cement India Ltd. (market cap ~3500 Cr.) is a subsidiary of global parent HeidelbergCement Group, based out of Germany. The parent company is one of the leading players in the world (ranks no. 2 in cement), with presence in more than 60 countries.

It entered India in year 2006, in a 50:50 joint venture with Indorama cements. It also acquired majority stakes in other companies like Mysore cements and Cochin cements. By 2008, the company fully acquired Indorama cements and in 2009 merged its operations with Mysore cements. The resulting entity was renamed as Heidelberg Cement India Ltd (or HCIL).

The company underwent brownfield expansion which it completed in 2013-14, the capacity of the company increased to 5.4 Mtpa (from 3.07 Mtpa in 2009). By 2019, the plants were running at above 90% utilisation rate, so the company commissioned debottlenecking plans to further increase its existing capacity by march 2020. The present capacity now stands at 6.26 Mtpa (as against total India capacity of nearly 490 Mtpa)

Company has its operations in Damoh (M.P.), Ammasandra (Karnataka) and Jhansi (U.P.). Majority of the sales of the company (~95%) comes from Central India. Products of the company include PPC (Portland Pozzolana Cement) and PSC (Portland Slag Cement) and it markets them under the brand name mycem. The brand has a niche but decent market in Central India.

Company’s performance and Financials: (all data from screener.in)

Here are the sales and profit charts of the company for the past 10 years (in Cr.)

Please note that the jump before 2015 and dip after that is because the company changed its accounting year in 2014. So FY15 included 15 months instead of 12 (from jan. 2014 to march 2015).

A glance over the past 10 year performance, in aggregate, looks very ordinary. Sales have grown at cagr of 10.8%, while net profit at 5.5%. However, after the company finished its brownfield expansion in 2013, there has been a significant improvement in its performance. The same is reflected in past 5 years data- sales have grown at 12% cagr, while profits at 49.4%.

Over the years, the company has resorted to various cost cutting measures and optimisation of its facilities. Some major ones are highlighted below-

  • Installed a waste heat recovery power plant at its Narsingh clinker unit in Damoh. This meets 37% of the power requirement at the plant.
  • Optimised fuel mix- kilns that were designed to operate on coal were upgraded to burn petcoke as well.
  • The company installed an enormous 21 Km long overland conveyor belt system to transport limestone from its mines in Patheria (M.P.) to its clinker facility at Narsingh, Damoh. This not only helps in reducing transportation cost but also loading/unloading times.
  • For its Ammasandra unit (Karnataka), the company has entered into a 25 year solar power purchase agreement which will meet 50% power consumption of the plant.
  • Cement is a low value and high volume commodity and as such freight costs are significant. As per company’s annual report 2017-18, HCIL has one of the lowest freight cost in industry. This has been achieved by adopting a flexible and dynamic mix of rail-road deliveries. The company has also entered into some long term tariff agreement with Indian Railways (not aware about details).

Because of above several measures, the overall operating performance of the company has improved over the years. Operating margin has increased 1.5 times from 16% in 2015 to ~24% TTM and is clocking right up there with the big boys for the past few years (only Shree Cement significantly ahead). Roce also improved from 9% in 2015 to 25% in 2019.

The company achieved an inventory turnover of above 14 last year (highest in industry) and an asset turnover of 1.25. Ebitda/tonne efficiency as per last year’s annual report was Rs 987. While part of all of that may be due to higher utilisation levels of its existing capacities (above 90%) and lower base, improvement in these numbers along with operating margin does suggest the company’s brand has good growing visibility in the region.

This further gets reflected in the number of receivable days, which is ~5, and has been that way since 2015. Likewise working capital to sales is less than 5% and again most impressive in the industry. All these suggest excellent cash generating capabilities of the company, total cash flow from operations over the past 5 years is 3 times its total profits after tax for the same period.

Consequently, the company has been able to reduce its debt considerably, and because of excess cash has also started paying dividends. Borrowings of the company reduced from Rs. 1299 Cr. in 2015 (D/E ratio= 1.51) to Rs 398 Cr. in sept. 2019 (D/E ratio=0.32).


In the short to medium term, due to the present lockdown and migration of labours, cement demand is going to be affected severely as per many analysts’ reports. For example, Crisil expects fall in demand to be between 10-15% this year even in the best case scenario, In the worst case it can be upto 20-25% (link)

For the cement industry, quarter 4 and quarter 1(summer) are the strongest, and both of them have been impacted, while the monsoon quarter (which is upcoming) is weakest. The fall in prices of crude however may provide some relief if the govt. decides to pass some of its benefit to industry/retail as it will reduce the freight costs. A lot will however depend upon govt spending on construction related activities and the easy availability of home loans.

In the long term, as per this ibef report (link), cement demand is expected to grow at 1.2 times gdp growth.

Risks and Concerns:

  1. Cement is a cyclical commodity. As such demand, supply, margins etc. depends on a lot of factors that are often outside companys’ control.
    i). A cut in government’s spending on infrastructure, rise in home loans, general well being of the economy- all can affect demand.
    ii). Major raw materials used are- Limestone, coke and petcoke (as fuel), flyash, slag, gypsum and water. Transportation costs are also significant and hence petrol/diesel prices also affect margins.

  2. Industry is very competitive and fragmented. There are many small and large players and there is always a chance of oversupply. Besides, in case of an economic slowdown, growth can come only from snatching market share of other companies which is not easy as 70% of the market share belongs to large companies who already have good brand loyalty.

  3. Having mining access to limestone reserves, especially near the plants, is perhaps the biggest competitive advantage. Though HCIL does have mining rights (in Patheria Mines, near Damoh, M.P.) but procuring new access to limestone reserves may pose a challenge when the company decides to move to newer geographies.

  4. The parent group has other subsidiaries in India besides HCIL, like- Cochin Cements, Zuari Cements (considerable presence in South India). Thus the parent group has significant presence both in Central India(through HCIL) and South India. And taking capacities of all into account then it is already among top 10 biggest cement companies of India.
    Further management has indicated they are open to inorganic expansion (acquiring other companies) in other parts of India. While any such move will definitely benefit the parent group, it remains to be seen how that will benefit HCIL. As from growth point of view, it will be a huge negative if the company is constrained to operate only in Central India.


  1. Permanent employee strength- 1231, temporary/contract basis- 2974 (as per last year’s annual report)

  2. Promoter holding- 69%, pledge- 0%

  3. None of the members of key managerial personnel (KMP) hold any shares in the company.

  4. Total Remuneration paid to directors and KMP (including commission, sitting fees etc.) - Rs 6.55 Cr (% of total profit- 3%, % of total employee expense- 5.28%).

  5. Many of the directors and upper management of HCIL also hold key positions in other Indian subsidiaries of the parent group (Zuari cements, Cochin cements).

  6. Current Market Cap- Rs 3580 Cr., P/E - 13.63, P/B- 2.9, EV/Ebitda- 6.1.

Disc.- Invested (10% of portfolio) and as such views expressed above might be biased.


Key to cement or other commodity based business is the LOW COST production and the AREA where it is operating .If you compare EBITA/ton across the pears one can very well understand the game .
sep 18 Vs sep 19
Shree Cement 907 -> 1481 —>up 63%
Mycem — 1041 -> 1169 ----->up 14%
Shree cement I like the most in the cement sector . What like doesn’t mean that everybody should like that but the underlying factors where the game is heading to is in indian market the margins are compressing and Shree cement has expanded the wings to middle east and acquired govt backed company in 2018 ( company CCC ) . No doubt that the company is ticking almost all the right boxes yet take some time to improve on margins .

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Hi, while I appreciate the performance of Shree Cements, but can you tell me why compare improvement in efficiency for past one year only and that too from sep-18 to sep-19 ? Such kind of comparison where you selectively pick data can paint a very wrong picture. For example, from march 2016 to march 2019, ebitda/tonne for Heidelberg increased from 474 to 938 (nearly 100% increase) while during same period for Shree Cements it increased from 800 to 1000 (25% increase).

I am not saying Heidelberg is more efficient than Shree (I don’t track Shree cements), even though Heidelberg has improved but Shree is still ahead. But when you compare such statistics please compare it over a period to see the trend.

Besides there are other more parameters to consider. Shree is a fairly large cap company with a strong visible brand as compared to Heidelberg which is a small cap and in “brand building” stage. But the small size of the company is also the reason why it has better growth prospects.


Dr Vijay malik fundamental analysis.


Concall highlights & key updates

 Input material prices and availability
Fly-ash availability has been hit as the power plants in the vicinity of cement grinding plants have been operating intermittently. For uninterrupted production, the company is sourcing fly-ash from other
power plants situated at a distance. HDPE bags, used to pack cement, are manufactured by labourintensive units, now faced with a labour issue. So far, none of the company’s vendors/contractors has expressed inability to fulfil contractual obligations besides some vendors requesting additional time to effect deliveries.

 Logistics: For FY20, the rail-road mix for the quarter was 54:46. /the current lead distance is ~368-370km. The company expects some constraints on availability of truck drivers, labour shortage at railway yards and delayed clearance of railway wagons. Its current level of dispatches are adequately met by trucks available in the market.

 Sales and demand: No clinker sales and 10 days sales lost (~100,000 to 125,000 tons) in March due to the lockdown brought overall volumes down 10% y/y to 1.09m tons. Many dealers are faced with a
liquidity crunch and want to liquidate inventory before placing fresh orders. Cement demand may be sluggish due to labour shortages in urban areas. However, areas where government spending is good, will see better demand. The company is concentrating on increasing its share in the trade channel, with the trade-nontrade mix in FY20 at 85:15. Volumes of premium products increased to 13% of trade volumes, up 38% y/y.

 Finance: In FY20, the company repaid the first tranche of NCDs of 1.25bn. Management talked of repaying 1.25bn in FY21 and `1.2bn in FY22 from internal accruals. It has put in place additional internal controls and reporting systems to facilitate daily monitoring and review
of the following aspects.
• Cash-flow including overdue outstandings from debtors;
• Inward and outward movements of materials;
• Availability of raw materials, semi-finished and finished goods
at all locations.

 Cost optimisation. In FY20, the company’s dependence on grid power dropped to 66% The pet coke-domestic coal ratio was 61:39. The company has an efficient process for changing its fuel mix within two days. The benefits of softening fuel prices will be seen in coming quarters.Further, as a cost-optimisation measure, tenures of various annual maintenance and service contracts have been extended by two to three months without any extra costs. However, a cost rise can be seen due to the long lead distance.

 Capacity expansion
During Q4 FY20, the company completed de-bottlenecking its cement grinding capacities in lmlai (Madhya Pradesh) and Jhansi (Uttar Pradesh). On completion of the de-bottlenecking, total cement grinding capacity would be 6.26m tons. Management spoke of maintenance capex of `500m and further debottlenecking clinker capacity. It will continue to progress on the Gujarat plant (~3m tons). It has deferred some scheduled repairs, which it said will not impact manufacturing operations.


Result out for Sep Quarter - PAT up 7% YoY to 624 Crores from 580 Crores. Market was probably expecting fireworks like Ambuja and ACC - hence negative reaction of -3%


Company seems to be planning an expansion in Gujarat. From last conference call, seems to be holding on to the margins and not letting go for higher volumes. Current utilisation rates are high prompting for expansion. Overall seems to be a long term player.
Disc: Invested


Currently the valuations of cement companies is pretty cheap, as margins of the sector has dropped. You buy a sector, when it is in doldrums, and have good long-term growth prospects.
As, there will be big infrastructure boom is next 3-4 years in India, cement companies will benefit the most. The margins will come back to norm in Cement Sector eventually, as more & more price hikes are taken by companies.
Heidelberg Cement is one of the best opportunities in the sector. Reasons:-

  1. Company is planning a big capex in Gujarat State.
  2. Company has highest return ratios in the entire cement industry, with ROCE of 25% & ROE of 22%.
  3. Company recently commissioned a 5.5 MW Solar Power Plant, which will help in increasing margins of the company.
  4. It has repaid its entire debt, & is debt-free company now.
  5. It is an MNC, trading at multi-year low PE of 15, against Industry PE of 25.

Written a note on companies in cement sector

Key point to note:

Companies making themself debt free

Reducing power cost

Increasing ROC

Taking price hikes

Company to give a dividend of ₹9/- next month. CMP 192. Dividend Yield - 4.7%.

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Update from German Holding Company:-

  1. German company Heidelberg Cement has changed its name to distance itself from its core product and focus on its sustainable materials and digital businesses.

  2. Heidelberg Materials, as it will be called, says it will be the first company to offer carbon-free cement on large-scale projects by 2024. It also hopes to cut carbon emissions on under way projects by 10 million tonnes. By 2030, the aim is to generate half its revenue from low-carbon products.

  3. The new brand will be immediately adopted by the core company and will be used by domestic and international subsidiaries from 2023 onwards. HeidelbergCement AG will remain the parent company.


FY23Q3 Con Call Transcript Notes

  • 33% increase in green power

  • 100% blended cement - commitment

    • R: reducing CO2
  • Volume YDN

    • R: warehousing problem
  • cost YUP: 9% - partially offset by price increase

    • price increase - long way to go
  • EBITDA: 339 (DN)

    • R: higher power and fuel costs
  • -ve working capital

  • Net cash: 150Cr

    • making two interest-free loan payments to UP gov
  • acq additional mines adjoining to their existing one

    • extend plant’s life

    • open up opportunities for expansion

    • go-ahead to do work on Line #3

      • placed order for equipment
      • plan to bring it on stream next year
  • road & rail volumes are almost the same

  • focus on premium products

  • new product launch: Mycem Primo

  • coal+petcoke ratio → lowest possible fuel cost

  • trade:non-trade: 75:25 / Plan: will focus on trade in future

  • Jhansi Plant received Apex India Safety Award

  • cement industry: +ve outlook 2023

    • R: gov projects and allocations
    • R: good Rabi crop & softening fuel prices → better rural demand
    • R: possibility of reduction in GST
  • MD stepping down; current COO → MD

  • decline in volume, trade and premium shares

  • decline in trade share

    • R: accounting change → L: overestimation in previous Qs
  • decline in volume → L: working with advisors and consultants on market issues

    • R: warehousing issues
    • R: increase in competition ← R: aggressive pricing by competitors
  • Kcal cost: 2.85/-

  • Gujarat expansion

    • started data collection
    • get ToR by CY23/02
  • debottlenecking

    • add 2L T clinker capacity
      • 24M to complete
  • clinker capacity (current)

    • Karnataka 3.5M T
    • Central India: 3.1M T
  • potential for calcined clay LC3 cement

    • not an easy task
      • R: limited availability & heterogeneity of clay in India
  • merger of Heidelberg and Zuari in India

    • working on merging two units → achieve financial fungibility
      • 18M to complete
  • rationale for new limestone base

    • L: increase life of mines for existing operations
    • K: opportunities to expand clinker and cement capacity
  • logistics issues

    • 2-3% volume loss for about 10 days in some high volume areas during Q
  • Kiln plant shutdown

    • incurred mntc cost
  • Capacity addition

    • 0.3M T cement + 0.2M T clinker
  • brand positioning - premium product Mycem Power

    • 20-60 higer than nomal brand / 30-35 higher than UltraTech normal brans
  • Fuel cost 9M YUP 40%

    • (now) price has softened
    • reduction of up to 8% NQ
  • petcoke landed cost: 20-21K/T (now) | (Q3) 22-23.5K/T

  • Weak demand in Central India

    • R: lack of gov spending
    • Ft: Good Rabi crop → pick-up in rural demand
    • Ft: FY23 demand growth in central India : 7%
  • cement prices DN

    • R: pressure from increased competition
    • R: addition of new capacities in the market
  • confident of retaining brand equity and channel partners

  • GST incentive expiry: 40/T - 2/Bag by CY23/02

  • Gujarat projects

    • may consider scrapping old line and building new one in central india region
    • current mine limestone reserve: 25Y
    • using rejects and sweetener to extend life of mines
  • CAPEX: FY23 & FY24 (both): 40Cr + (FY24) 15Cr clinker debottlenecking

    • Q3: 5-7Cr
  • lead distance: 350

  • Price

    • South India: UP 125-130/T
    • Central India: Flat
  • Ft: CAGR N3-5Y Rev 10%

    • R: market growth & inflation



there has been hardly any cement sales volume growth for the company. That is a big cause of worry. the volumes were 4.65 mt tonnes in FY18. And, in latest FY23, the volumes is a mere 4.39 mt tonnes. this needs to go to atleast 6 mt tonnes, for company to stop losing market share.

Company keeps on claiming good cement volume growth in each concall, but the volume growth has actually been NEGATIVE in last 5 years.

Company continues to lose market share, even when India’s cement consumption growth has been steady at 8-9%.

Two triggers which can re-rerate the stock from here:-

  1. High single-digit growth shown in Cement Volumes.
  2. Merger with Zuari Cement.

Heard the concall

  • Pretty non-committal management commentary on growth and capacity expansion plans. Still awaiting clearance for the greenfield expansion. Debottlenecking efforts are still on
  • Focus is on cost optimization thru a better mix of energy consumption
  • There is management pedigree and a conservative approach to efficient use of cash (prefer that), and the emphasis is on premium positioning of offerings in the core markets. Global heritage also matters
  • Current capacity utilization still has some cushion to increase
  • Good dividend payer (decreased this year though, something to keep a watch on as a trend)
  • Competition in their core markets is a concern

Guess they will keep losing market share or at best grow in line with market in the near to mid term
The surprise on the upside could be competition doing aggressive expansions through excess debt which puts a drag on their earnings later